Natural Gas stuck in correction mode with more downside ahead

Natural Gas adds another to its correction, hitting six-week low.
A Louisiana judge has lifted Biden’s ban on new licenses for LNG exports.
The US Dollar index rallies higher and pops above 106.00 on concerns about a Trump win.

Filip Lagaart FXStreet

Natural Gas price (XNG/USD) is close to locking in a sixth day in a row of losses, making the correction even more painful. Over 15% in value has already evaporated since June 25th, and more downturns could be at hand as a US judge in Louisiana issued a ruling on Monday to lift the current ban on new export licenses for Liquified Natural Gas (LNG). The Biden administration had issued a ban for new LNG export licenses a few months ago, in order to meet demands from climate changes and reforms.

Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is having a field day and rallies higher on concerns in the bond markets. With former US President Donald Trump in the lead now in recent polls, his spending plan is a concern for the bond market. With ample amounts of spending, the US debt would become intolerable, while other measures, such as tariffs, are hardly enough to offset any big spending promises.

Natural Gas is trading at $2.45 per MMBtu at the time of writing.

Natural Gas news and market movers: More downside ahead

US District Judge James D. Cain Jr. in Louisiana has decided in favor of 16 states that opposed US President Joe Biden’s current export moratorium on new LNG projects, Bloomberg reports.
Bloomberg’s Energy Desk is forecasting that any supply glut in LNG will be absorbed by 2030 as several new projects currently are facing substantial delays, which means not being operative by the time already operational plants are set to near the end of their lifetime cycle.
European Gas prices are facing less downturn, with several regions experiencing substantially elevated temperatures, and sparking demand for electricity in order to keep air conditioners performing, Reuters reports.

Natural Gas Technical Analysis: Support not near at all

Natural Gas price has snapped the important 200-day Simple Moving Average (SMA) support near $2.53. With that break lower, Gas price is now trading below $2.50. With not much level to go on, the only next support near is still 8% lower, while the Relative Strength Index (RSI) is not yet nearing its oversold barrier.

The 200-day SMA turns now as a resistance, near $2.53. Once back above there, the pivotal level near $3.08 (March 6, 2023, high) remains key resistance after its false break last week, which is still 20% away. In addition, the red descending trendline in the chart below at $3.10 will also weigh on this area as a cap. Further up, the fresh year-to-date high at $3.16 is the level to beat.

On the downside, the next target could be the pivotal level near $2.13, with interim support by the 100-day SMA near $2.25

Natural Gas: Daily Chart

Natural Gas FAQs

What fundamental factors drive the price of Natural Gas?

Supply and demand dynamics are a key factor influencing Natural Gas prices, and are themselves influenced by global economic growth, industrial activity, population growth, production levels, and inventories. The weather impacts Natural Gas prices because more Gas is used during cold winters and hot summers for heating and cooling. Competition from other energy sources impacts prices as consumers may switch to cheaper sources. Geopolitical events are factors as exemplified by the war in Ukraine. Government policies relating to extraction, transportation, and environmental issues also impact prices.

What are the main macroeconomic releases that impact on Natural Gas Prices?

The main economic release influencing Natural Gas prices is the weekly inventory bulletin from the Energy Information Administration (EIA), a US government agency that produces US gas market data. The EIA Gas bulletin usually comes out on Thursday at 14:30 GMT, a day after the EIA publishes its weekly Oil bulletin. Economic data from large consumers of Natural Gas can impact supply and demand, the largest of which include China, Germany and Japan. Natural Gas is primarily priced and traded in US Dollars, thus economic releases impacting the US Dollar are also factors.

How does the US Dollar influence Natural Gas prices?

The US Dollar is the world’s reserve currency and most commodities, including Natural Gas are priced and traded on international markets in US Dollars. As such, the value of the US Dollar is a factor in the price of Natural Gas, because if the Dollar strengthens it means less Dollars are required to buy the same volume of Gas (the price falls), and vice versa if USD strengthens.

Author

Filip Lagaart

FXStreet

Filip Lagaart is a former sales/trader with over 15 years of financial markets expertise under its belt.

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